\n<\/p>\n
O<\/span>ne reason to worry about the chancellor\u2019s plan for deregulation in the financial services sector is the dramatic language in which she pitched it. Rachel Reeves\u2019s metaphor in her Mansion House speech last month about regulation in too many areas acting as \u201ca boot on the neck of business\u201d felt wildly over the top when you remember why tougher financial rules were needed in the banking sector in the first place. It was because the light-touch regulatory era caused the whole economy to be clobbered in the collapses of 2008-09.<\/p>\n In the event, it took until 2019 to fully implement the centrepiece of the clean-up operation \u2013 bank ringfencing, which requires UK banks of a certain size to separate their retail and investment banking activities. Now, six years later \u2013 no time at all in the grand scheme \u2013 the Treasury, lobbied by most of the big banks, is contemplating \u201cmeaningful\u201d changes to ringfencing in the interests of economic growth. It feels far too soon to try anything radical.<\/p>\n The definition of \u201cmeaningful\u201d is vague, it should be said. Outright abolition of ringfencing is off the table, thankfully, and some of the possibilities floated by the Treasury could be viewed as innocuous. Letting banks share back-office resources across the ringfence? Yes, that could be regarded as mere housekeeping. Allowing ringfenced banks to provide more products to UK businesses? Possibly, if we\u2019re talking about low-octane services.<\/p>\n But the details do matter. The danger is that, if you create too many holes in the fence, you end up defeating the purpose of the construct. There are at least three reasons why Reeves should drop the inflammatory language and err on the side of caution.<\/p>\n First, remember the primary goal: to ensure the state never has to bail out banks again \u2013 at least not the riskier trading activities. The plea from reformists is that other measures, such as stiffer capital requirements and \u201cliving wills\u201d to organise an orderly wind-down, do the same job. Yet ringfencing is surely genuinely different because it is a structural measure \u2013 the core UK deposit-taking operations have to sit inside their own legal entity. Maximum protection for the deposit-taking core still feels a sound principle given what happened in 2008-09, and how the whole of the wretched Royal Bank of Scotland was dragged down.<\/p>\n Second, ringfencing may lower funding costs for banks. The perception of greater resilience should, in theory, attract a funding bonus. Put another way, regulators \u2013 with their eye on the overall stability of the system \u2013 might demand even higher capital buffers if ringfencing were to be meaningfully weakened. Would-be abolitionists grumble about the costs of trapped capital. Fair enough, but they probably wouldn\u2019t like bigger capital buffers either.<\/p>\n skip past newsletter promotion<\/p>\n Sign up to Business Today<\/span><\/p>\n Get set for the working day \u2013 we’ll point you to all the business news and analysis you need every morning<\/p>\n Privacy Notice: <\/strong>Newsletters may contain info about charities, online ads, and content funded by outside parties. For more information see our Privacy Policy. We use Google reCaptcha to protect our website and the Google Privacy Policy and Terms of Service apply.<\/span><\/p>\n after newsletter promotion<\/p>\n Third, if the chancellor\u2019s aim is more growth, why make it easier for UK banks to chase higher returns outside the UK? She should listen to the commonsense point made by Andrew Bailey, the governor of the Bank of England: \u201cRemoving the ringfence would most likely have a negative effect on UK lending, both in terms of cost and quantities.\u201d If ringfencing has meant cheaper mortgages, it would be a political risk for a chancellor to mess with the formula.<\/p>\n None of which is to pretend that ringfencing has been a free lunch. Friction and expense clearly exist \u2013 the big banks spent a small fortune setting up the structures and have to carry extra overheads. Competition may also have suffered as big ringfenced banks have concentrated on UK mortgage lending and smaller banks have been forced towards riskier lending. Visions of a post-crisis world full of dynamic \u201cchallenger\u201d banks never materialised.<\/p>\n But that is just to say that trade-offs exist. For the UK \u2013 a country that simply cannot afford another crisis like 2008\u2019s \u2013 financial stability should still be the priority. A few minor fiddles might be an improvement because no design is perfect. But major reform is not needed.<\/p>\n","protected":false},"excerpt":{"rendered":" One reason to worry about the chancellor\u2019s plan for deregulation in the financial services sector is the dramatic language in which she pitched it. Rachel Reeves\u2019s metaphor in her Mansion House speech last month about regulation in too many areas acting as \u201ca boot on the neck of business\u201d felt wildly over the top when<\/p>\n","protected":false},"author":1,"featured_media":15507,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[48],"tags":[3189,3037,9070,4167,4168,838,4165,1070],"class_list":{"0":"post-15506","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-politics","8":"tag-bank","9":"tag-doesnt","10":"tag-largescale","11":"tag-nils","12":"tag-pratley","13":"tag-reform","14":"tag-ringfencing","15":"tag-uks"},"_links":{"self":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/15506","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=15506"}],"version-history":[{"count":0,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/15506\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/media\/15507"}],"wp:attachment":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=15506"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=15506"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=15506"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}